BOJ Rate Hike Confirmed: Will Japan's Economy Normalize?

Masahiko Loo, an APAC Senior FI Strategist at State Street Investment, has been following the Bank of Japan's (BOJ) policy decisions for years. He expects a rate hike by the end of this year, citing Japan's inflation trajectory and growth.

Loo notes that two new board members appointed by Prime Minister Sanae Takaichi dissented against the recent rate hike from 1% to 1.25%. However, he believes their dissent is not a major surprise, as they are 'reflation camp' appointees. The market's reaction, with the yen weakening due to expectations of another rate hike, is also seen as misplaced.

Loo points out that Japan's inflation is slightly under 2%, mainly due to institutional factors such as electricity subsidies. However, when these factors are stripped out, underlying inflation is closer to 3%. He expects this trend to continue and reach core CPI of 3% by year-end.